Mortgage lenders did not expect 2009 to be kind to their balance sheets. For consumers who lost their jobs, went underwater on their homes, or suffered through plunging net worth, paying the mortgage seemed an increasingly daunting task. The year wasn’t shaping up to be a “growth” year in the mortgage market.
Credit unions, however, did manage to post strong growth numbers through their real estate portfolio.
Dealing with Current and Future Credit Risk:
Credit Unions vs FDIC-Insured Institutions in 3Q 2009
Source: Callahan’s Peer-to-Peer Software, FDIC’s Quarterly Banking Profile (QBP)
*Coverage Ratio = Allowance for Loan Losses / Delinquent Loans
†Referred to as “Core Capital Ratio” on QBP
There is notable variation in the performance of credit unions by size, geography, charter type, etc. For example, average real estate delinquency for Arkansas credit unions is 0.71%, while the average for Nevada is 7.3% (representing the two extremes). Overall, credit unions are growing their real estate portfolios despite looming asset quality concerns and rate risk concerns, which will be addressed in an upcoming ebrief. Credit unions have kept delinquency and charge-offs in check by maintaining conservative lending standards and by leveraging tools, such as modifications and temporary forbearances, to reach members facing short-term economic difficulties.
Finally, the coverage ratio indicates that credit unions have room to grow. In each of the past four quarters, credit unions have built their reserves against loan losses. This reserve provides a cushion for credit union mortgage lenders and alleviates some pressure from future provisioning expenses, allowing credit unions in 2010 to build on the growth trends of 2009. Although tightly managing loan losses will be a priority for credit union mortgage programs throughout the next year, it should not discourage credit unions from meeting the mortgage needs of members. By maintaining a sustainable growth strategy and actively managing asset quality, credit unions can look forward to another year of outperforming the competition.